Knowing what associations that drive price premium (willingness to pay more) vs volume premium (willingness to buy more) is crucial to support your strategy. Depending on whether your main challenge is to gain/defend market share (volume) or justify higher prices (premium) you need to work with different arguments.
Ever since the concept of branding emerged, the common sign of a strong brand has been its ability to charge a higher price than competitors. Yet the issue of price is often left out of brand strategy and decision-making, even if a 1% price increase is worth up to 13% on your bottom line. Instead, the normal comment is “If we raise prices, we’ll lose customers”.
In some cases this is true. But a good advice from the industry nestor Hans Werthen from Electrolux is worth remembering:
“I’ve seen many more companies get into trouble because their prices were too low than because they were too high. If your prices are too high, you get a reaction right away and can correct it. The opposite you’ll never find out about.”
Whatever your strategy, it is crucial to understand exactly what customers are willing to pay more for. Very few industries are so price-locked that customers never accept a premium. The key is to load your brand with the right associations. And this applies whether or not you intend to charge a higher price. If customerswant to pay more but you don’t raise the price, you have essentially added perceived value, and will gain a competitive advantage that way instead.
A very important finding from the Brand Potential analyses, carried out with around 30 customers, is that the associations that make customers choose a brand (volume premium) are often different from those that make them willing to pay more (price premium).
Generally, price premium is driven by the brand’s social role. The analyses show that customers in B2B are willing to pay more for brands associated with:
- Uniqueness
- Status
- Sophistication
- Inspiring and fun
- Creative and exciting
Some of these arguments feels a bit odd in B2B. A customer would never admit a driver like status. But think about how many CEOs that proudly have said “we have worked with McKinsey…”. Another interesting factor is the balance between price premium and volume. Being perceived as too unique, as an example, often reduce volume premium – important to remember given how often uniqueness is emphasized as the key to successful positioning.
Depending on your business, brand, and marketing strategy, this means emphasizing different things. Or, in the best case: finding a credible, achievable, and sustainable association that drives both willingness to buy and willingness to pay more.
To learn more insights from the Brand potential analysis done, there is a lot of earlier blog posts presenting this unique brand analysis. And if you want to discuss how to reveal your unique drivers, let’s take a discussion.. You reach me at ulf@sfinxagency.se
